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Investment Overview for Intel (NASDAQ:INTC)

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Below are key drivers of Intel's value that present opportunities for upside or downside to the current Trefis price estimate for Intel:

Notebook Processors

Notebook Processor Average Pricing: Currently we forecast this figure to decline from $81 in 2014 to $70 by the end of our forecast period, resulting from increased competition from AMD & ARM-based players. However, if new innovative products improves helps Intel retain the average price for its notebook processors, there will a marginal upside to our price estimate. On the other hand, there could be a marginal downside if the average price were to dip down to as low as $55 by end of our forecast period.

Server Processors

Intel's Server Processor Market Share: We estimate that this figure will decline from an estimated 95% in 2014 to 84% by end of our forecast period. However, if Intel's server processor share goes down to historical levels of 75% seen in 2007, there can be a marginal downside to our valuation. On the other hand, there can be slight upside if Intel can maintain its current market share for the next few years.

For additional details, select a driver above or select a division from the interactive Trefis split for Intel at the top of the page.

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Intel manufactures and markets microprocessors used in servers, desktops and notebooks. Microprocessors are a PC's central processing unit (CPU) or the brain behind the computer. A microprocessor is the single most important component that drives computer's power and performance.

Intel also manufactures chipsets used in desktops, notebooks and wireless devices. A chipset operates as the PC's nervous system, sending data between the microprocessor and input, display and storage devices such as the keyboard, mouse, monitor, hard drive and CD or DVD drive.

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We believe the Server & Notebook Processors divisions are the most valuable segment within Intel:

High Market Share & EBITDA Margin in Servers

Having lost its market share to AMD several years back, Intel has steadily regained its share in the server processor market. Though it lost some market share in 2013, Intel still accounts for an impressive 95% of the market. The company earned around 62% EBITDA margin from servers compared to the 53% earned from the PC market, in 2014.

Growing Notebook Processors Market

We estimate that Intel held a 89% market share in the 190+ million unit notebook market in 2014 compared to 83% market share in the 110+ million unit desktop market. Besides the fact that Intel is simply selling more notebook processors than desktop processors today, the notebook market is estimated to grow over our forecast period whereas desktop shipments are expected to decline.

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On-Going Server Virtualization

Server virtualization is essentially server consolidation that enables running multiple applications on a single server instead of on multiple servers. Server virtualization is driving a mix shift to higher-end servers, which requires multi-core processor servers that tend to be more complex and more expensive than traditional single core processors.

Shift from Desktops to Notebooks

The shift of consumer preference from desktops to laptops will continue as the performance and pricing gap between desktops and laptops narrows. We expect the desktop market to stagnate but forecast notebooks market to witness growth throughout our review period, primarily driven by demand from emerging markets.

Increasing Importance of Smartphone and Tablet Chips

While PC shipments have declined drastically in the last few years, mobile shipments (particularly smartphones and tablets) have grown at a robust rate. Though growth rate has slowed as developed markets near saturation, mobile shipments continue to expand at a fast pace.
IDC estimates the global tablet shipments to rise to cross 380 million units by 2017, compared to 117 million units in 2012.
(Link)

Gartner estimates that more than 8 billion smartphones will be sold over the next five year period, through calendar 2018. The installed base will reach approximately 4.4 billion, representing the largest technology platform on which to innovate and drive upgrade opportunities.(Source)

Intel accounts for 4% – 5% of the global tablet market (the share increased in 2014 though we don't have the exact no. yet). Its share in smartphones is less than 1%

Convergence of Graphics & Processing

With the introduction of Intel's Sandy Bridge processors and AMD's Llano processors both companies have moved away from the idea of integrated graphics. These chips pack GPU within the CPU leading to much better graphics performance than one can get from traditional integrated graphics.

PC Market Opening up to ARM

Windows 8 is ARM-compatible which marks the entry of ARM-based processor manufacturers in the PC market, which has traditionally been dominated by x86 processor architecture. This will challenge the dominance of Intel which could lose some market share in the future, on account of increasing competition.

Growth in The Internet-of-Things (IoT) Market

Gartner estimates the IoT market to grow almost 30 times, from an installed base of 0.9 billion in 2009 to 26 billion by 2020. It will result in $1.9 trillion in global economic value-add through sales into diverse end markets. (Link)

Wearable devices, clothing and accessories incorporating computer and advanced electronic technologies, is a subset of the IoT market and is considered to be the next big wave in computing. Juniper Research estimates the wearable computing device shipments to increase from 15 million units in 2013 to 150 million units by 2018. ABI Research forecast the figure to cross 450 million units during the same period. (Link)

Intel was a late entrant in the mobile computing space and for this reason does not (yet) have a very large presence in the market. However, the computing giant is keen not to miss the next big wave in computing – Internet-of-things.

In 2014, Intel completed its acquisition of Basis Science, which specializes in wearable device technologies for health and wellness applications. This gives Intel an immediate entry into the wearable devices market. The company intends to build upon this foundation to deliver new products that offer greater utility and value to its customers. Intel has been investing in a wide range of start-ups in the wearables space, and has also tied up with some fashion houses to market wearable gear as a fashion accessory rather than just a device that monitors your health (and more)

How Does Trefis Modelling Work?

How do we get the historical numbers for this chart?

Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.

Who came up with the Trefis forecast for future years?

The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.

How does my dragging the trendline on the chart impact the stock price?

We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.

We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.

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